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If you have a job that requires you to travel a lot by car, you should be deducting your business expenses to prevent overpaying your taxes. These expenses include both “common operating expenses” for the self-employed as well as vehicle expenses—which can be a great way to lower your tax burden.

To deduct the costs associated with the use of your vehicle, you can use either the Standard Mileage method or Actual Expenses method. You won’t be able to take both deductions, so you need to evaluate which method provides the bigger tax benefit for you. To help with the decision, we’ve outlined the basics of each method and highlighted two examples that illustrate the differences among each.

Standard Mileage
The simplest method for calculating your vehicle-related deductions is to use the standard mileage deduction. For tax year 2016, this is $0.54 per mile. In 2017 it will be $0.535 per mile.

You are eligible to count any miles you drive for business-related purposes. For example, if you drive for Uber of Lyft, you can deduct any miles related to your ridesharing services, including the miles you drive looking for passengers to pick up (even if there are no passengers in your car). However, if you run personal errands in between taking customers, you can’t deduct that mileage.

In order to claim this deduction, you need to keep a detailed mileage log. Your mileage log should include the date, start time and end time, the activity involved, and the beginning and ending odometer readings. Mileage and expense-tracking tools can help you maximize this mileage amount because they are the most comprehensive.

Choosing the Standard Mileage deduction means that you cannot deduct any other expenses related to your car. If you’d prefer to deduct other items, you need to use the Actual Expenses method.

Actual Expenses
When deducting actual expenses, you can only deduct the portion associated with your self-employed work (e.g. if half of your $100 cell-phone bill is used for work, deduct only $50).

Depreciation: When you use the Actual Expenses method, you can use a depreciation table to deduct a portion of this on your taxes. Just make sure the deduction is in proportion to your business driving time.

Registration: You can’t deduct your title, licensing and registration fees in all states. However, if your car registration cost is based on a particular formula, you might be able to deduct a portion of the cost. Check with a knowledgeable tax professional to determine whether this is an option for you.

Remember to save all of your receipts and keep good records so that you have the information you need to make a decision.

Example: Part-Time Rideshare Driver
part-time-rideshare-driver-expenses
Assume you drove 10,000 miles in the year 2016, and 5,000 of those miles were for business. Here’s how you would break down your deductions using the Actual Expenses method:

Gas: $1,000

Insurance: $1,500

Repairs: $400

Lease Payments: $6,000

Oil: $100

Washes: $500

These figures total to $9,500 in car-related expenses. Since you used your car for business purposes 50% of the time, you would multiply your total expenses by 50% to get your actual deduction, which comes out to $4,750.

If you use these same figures to calculate your deductions using the Standard Mileage method, you would multiply your business mileage (5,000 miles) by the standard mileage rate (54 cents per mile), which comes out to $2,700.

As you can see, in this example, you’ll save the most on taxes by using the Actual Expenses method for the deduction.

Example: Full-Time Rideshare Driver
fulltime-rideshare-driver-expenses
Now, assume you drove 40,000 miles in the year 2016, and 30,000 of those miles were for business. Here’s how the Actual Expenses method would work in this instance:

Gas: $4,000

Depreciation: $3,160

Insurance: $1,500

Repairs: $1,200

Oil: $190

Tires: $500

Washes: $750If you add these up, your total expenses come out to $11,300. Since you used your car for business 75% of the time, you would multiply your total expenses by 75% to get your actual deduction, which comes out to $8,475.

If you use the Standard Method with these same numbers, you would multiply the number of miles driven for business (30,000) by the standard mileage rate (54 cents per mile), which comes out to $16,200.

In this particular example, you’ll save the most on taxes by using the Standard Mileage method.

As you can see, the method you choose to calculate your car-related expenses can translate to either saving on taxes or adding to your tax burden. Accounting software like QuickBooks Self-Employed can help you keep track of mileage, automate your deductions and calculate both methods, allowing you to decide which method works best for you. And an accountant can also help if you’re having trouble with the decision. For more tax-time tips, see our complete guide to taxes for the self-employed, as well as our guide to deductions and expenses.

This article is intended to provide you with general information; it does not constitute any type of tax advice. The views expressed in this article are those of the author alone, and do not represent the opinions of Lyft, Uber or any employee thereof. For recommendations related to your overall financial and tax status, contact Hampton Roads Accounting today.

We are entering the holiday season – Thanksgiving, Christmas, and New Year’s. Homes will be busy with holiday shopping, entertaining family and friends, and lots of holiday decorations. Before you know it, it will be time to file your 2017 taxes.

Take a few moments now to collect the tax-related paperwork that reflect the special events that happened in your life this year, and put it safely away for January.

Here are some events to consider, and some items to collect now:

Did you buy or sell a home? A copy of your mortgage and closing documents

Did you have any casualty, theft or loss? A copy of all paperwork relating to the event

Did you get married? Social security cards

Did you get divorced or separated? A copy of the divorce decree or separation agreement, showing child support, alimony, and property settlement arrangements

Did you have any medical expenses? A copy of ALL unreimbursed receipts from any medical provider, pharmacy, and insurance provider

Did you move? Old and new address, and receipts for ALL expenses related to the move

Did you have a baby? Date of Birth, and Social Security Number (if you have one)

Did you start a new job? Receipts related to a new job search, or anything related to you getting the new job.

Did you or someone in your family attend school (beyond high school)? Receipts for all school related expenses including tuition, room and board, books, and other items

Did you start a new business? This list is VERY long. I recommend you visit our website and review the July 2017 Client Newsletter, which lists much of the paperwork needed to record new business expenses.

Did you donate to a charity/non-profit/religious organization? A copy of your receipt is needed.

Did you pay for daycare? You will need either the name and SSN of the person (if an individual), or the name, address, and EIN or the business or organization

Did you pay Personal Property Tax? A copy of the receipt

A copy of your 2016 Federal and State tax returns should be kept with your 2017 paperwork.

A copy of ANY other paperwork you feel is important, or you have questions about (“I wonder if this is deductible?”). It is far better to have a copy of an item you have a question about, than to later learn you need it but can’t find it.

A simple filing system to keep everything organized is to file:

Family (birth/marriage/divorce/daycare)

Home (sale/purchase/casualty/theft/loss)

Moving or job related

Medical

Business

Other/Miscellaneous

My BEST recommendation is – keep ALL of your receipts. As you can see from the brief list above, many normal events in your life have a tax implication. If you have a question about an expense, keep a receipt, and ask us when we prepare your tax returns.rns.

Many parents send their children to summer day camps while they work or look for work. The IRS urges those who do to save their paperwork for the Child and Dependent Care Tax Credit. Eligible taxpayers may be able claim it on their taxes in 2018 if they paid for day camp or for someone to care for a child, dependent or spouse during 2017.

Here are a few key facts to know about this credit:

Qualifying PersonThe care must have been for “qualifying persons.” A qualifying person can be a child under age 13. A qualifying person can also be a spouse or dependent who lived with the taxpayer for more than half the year and is physically or mentally incapable of self-care.

Work-Related ExpensesThe care must have been necessary so the taxpayer could work or look for work. For those who are married, the care also must have been necessary so a spouse could work or look for work. This rule does not apply if the spouse was disabled or a full-time student.

Earned IncomeThe taxpayer — and their spouse if married filing jointly — must have earned income for the tax year. Special rules apply to a spouse who is a student or disabled.

Credit Percentage/Expense LimitsThe credit is worth between 20 and 35 percent of allowable expenses. The percentage depends on the income amount. Allowable expenses are limited to $3,000 for care of one qualifying person. The limit is $6,000 if the taxpayer paid for the care of two or more.

Care Provider InformationThe name, address and taxpayer identification number of the care provider must be included on the return. The childcare provider cannot be the taxpayer’s spouse, dependent or the child’s parent.

Dependent Care BenefitsIf you receive dependent care benefits from your employer, special rules apply. You can send us an email with your questions, or review IRS Form 2441, Child and Dependent Care Expenses for more information on the rules.

Special CircumstancesSince every family is different, the IRS has a series of exceptions to the rules in the qualification process. These exceptions allow a greater number of families to take advantage of the credit. For more information, send us an email or see IRS Publication 503, Child and Dependent Care Expenses.

Even if the childcare provider is a sitter in the home, taxpayers may qualify for the credit. Taxpayers who pay someone to come to their home and care for their dependent or spouse may be a household employer. They may have to withhold and pay Social Security and Medicare tax and pay federal unemployment tax. If you feel that this might apply to you, contact our office.

Are you or your dependents attending a college or university? If so, you may be able to claim an education credit on your return.

An education credit helps with the cost of higher education by reducing the amount of tax owed on your tax return. If the credit reduces your tax to less than zero, you may get a refund. There are two education credits available: The American Opportunity Tax Credit and The Lifetime Learning Credit.

Who can claim an education credit?

There are additional rules for each credit, but you must meet all three of the following for both:

You, your dependent or a third party pays qualified education expenses for higher education.

An eligible student must be enrolled at an eligible educational institution.

The eligible student is yourself, your spouse or a dependent you list on your tax return.

Who cannot claim an education credit?

Someone else, such as your parents, list you as a dependent on their tax return

Your filing status is married filing separately

You already claimed or deducted another higher education benefit using the same student or same expenses.

You (or your spouse) were a non-resident alien for any part of the year and did not choose to be treated as a resident alien for tax purposes.

American Opportunity Tax Credit

The American opportunity tax credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student.

The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. But, if the credit pays your tax down to zero, you can have 40 percent of the remaining amount of the credit (up to $1,000) refunded to you.

To be eligible for AOTC, the student must:

Be pursuing a degree or other recognized education credential

Be enrolled at least half time for at least one academic period beginning in the tax year

Not have finished the first four years of higher education at the beginning of the tax year

Not have claimed the AOTC or the former Hope credit for more than four tax years

Not have a felony drug conviction at the end of the tax year

Lifetime Learning Credit

The Lifetime Learning Credit (LLC) is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate and professional degree courses–including courses to acquire or improve job skills. There is no limit on the number of years you can claim the credit. It is worth up to $2,000 per tax return.

To claim a LLC, you must meet all three of the following:

You, your dependent or a third party pay qualified education expenses for higher education

You, your dependent or a third party pay the education expenses for an eligible student enrolled at an eligible educational institution

The eligible student is yourself, your spouse or a dependent you listed on your tax return

There are a few more rules and limitations on these credits. If you believe you will be eligible for either of these credits, please let us know when we start your return.

Most people treat their pets a lot like children. You feed them, provide them a safe place to live, teach them skills (sit, stay), bring them to the doctor when they are sick or for a checkup, play with them, and show them love. They are part of your family.

Can you or someone you know deduct these and other pet-related expenses? Like most tax deductions, it depends. Let’s look at some situations:

Service Animals / Guide Dogs

If you require the assistance of a service animal (these include assistance animals for the blind, hearing impaired, mobility impaired, and therapy animals), expenses related to the animal could be considered medical expenses.

You will need a prescription from a doctor showing your medical necessity before you obtain the animal, and keep all documentation that shows the animal was trained and certified as a treatment for your specific medical illness or condition. Then, keep records of all expenses that relate to the animal. These could include training, veterinary care, grooming, food, and other reasonable expenses.

Guard Dogs

If your dog is used to guard and protect your business location, it might be a legitimate business expense. It would have to make sense (to the IRS) for a dog to be used in this fashion. For example, a dog guarding a junkyard, a warehouse, or a small retail store after hours would make sense. A dog guarding your home office – probably not.

Also, the size and breed of dog is important to help prove the dog being a legitimate guard dog. German Shepherds, Rottweilers, Bull Mastiffs, and Dobermans could all normally considered ‘guard dogs’. Your Teacup Poodle, Yorkie, or Chihuahua won’t be very convincing to the IRS inspector.

Think of the dog like any other business asset – you must keep track of all expenses and hours worked. Food, training, and veterinary bills can all be deductible.

Barn Cats / Pest Control Cats / Feral Cats

Instead of keeping out criminals, maybe your goal is to keep your barn / warehouse / lot / junkyard free of mice and rats. This could be either cats you own or feral cats you attract by leaving out food. You may be able to deduct food and veterinary bills for these pest control professionals.

Like the guard dog example, you have to show a reasonable business use, and document your expenses.

Show Animals / Hobby Income

Do you have a ‘show dog’ or ‘show cat’? Do you enter your dog or cat in shows to earn money? If so, the prizes and other income you earn from these shows could be considered hobby income. You may be able to deduct food, training, veterinary, show fees, travel, and even lodging expenses up to the amount of your winnings. Detailed records are the key for any hobby income and deduction, and show animals are no exception.

Foster Parents

If you provide a foster home for animals from a qualified nonprofit organization, your expenses related to the foster care may be deductible. You can’t deduct expenses that are provided or reimbursed by the organization (most organizations provide food, litter, and medical care for the animals). However, any other expense that is not reimbursed (like mileage to/from the organization) may be considered a tax-deductible charitable contribution.

Moving Expenses

If you have to move due to work, you may be able to deduct some of the moving expenses. Moving your personal belongings, vehicle, boat, lodging on the way to the new home are all valid expenses. So are expenses related to moving your pets. This could include a pet carrier for the trip, or the cost of shipping your pets separately from the rest of the family.

If you think one of these deductions may apply to you, contact us to discuss your pets and what documentation you might need. This will save valuable time when we prepare your tax return.

When is it?

August 4-6, 2017. The 3-day sales tax holiday starts the first Friday in August at 12:01 am and ends the following Sunday at 11:59 pm.

What is it?

During the sales tax holiday, you can buy qualifying school supplies, clothing, footwear, hurricane and emergency preparedness items, and Energy Star™ and WaterSense™ products without paying sales tax.

What items are eligible?

School supplies, clothing, and footwear

Qualified school supplies – $20 or less per item

Qualified clothing and footwear – $100 or less per item

Hurricane and emergency preparedness products

Portable generators – $1,000 or less per item

Gas-powered chainsaws – $350 or less per item

Chainsaw accessories – $60 or less per item

Other specified hurricane preparedness items – $60 or less per item

Energy Star™ and WaterSense™​ products

Qualifying Energy Star™ or WaterSense™ products purchased for noncommercial home or personal use – $2,500 or less per item

List of School Supplies Eligible for Exemption

“School supply,” means an item that is commonly used by a student in a course of study. For purposes of the sales tax holiday, the term does not include computers and such items may not be purchased exempt of the tax.

The following is an all-inclusive list of items that are included in the term “school supply” and are therefore exempt from tax during the sales tax holiday period, provided their sales price is $20 or less per item. Only the following items are exempt as school supplies. Items need not be intended for use in school or in connection with a school activity to be eligible for the exemption.

When starting your new business, you are probably not thinking about your tax return at the end of the year. You have a whirlwind of activity and things to focus on – getting proper licenses, setting up a business location, getting supplies and equipment, growing your client list, hiring employees, and so many other things.

When I sit down with a new business client, we discuss all the things they had to do to get their business started, because most of them are items that are deductible at the end of the year.

Here is an exercise you can do to improve the deductions you can claim at the end of the year. All you need is a notebook, a large manila envelope, a cup of coffee, and about an hour of quiet, undisturbed time. If your business is a partnership (husband and wife, or two friends), it would be helpful for you to do this together.

Just answer the following questions:

Do you have a home office? This is a space dedicated only for the use of your business, the main place where you work on your business.

Write down the total square footage of your home, and the total square footage of your office.

Look around the office and list EVERYTHING you had to purchase to start your business. Desks, computers, a copier, office supplies, a new phone line, Internet connection, security system, etc.

Did you have to do anything to your home office room to get it ready for business? Did you paint, install shelves, put in a new carpet or light fixtures?

Do you regularly meet clients at your home office?

Compile a list of ALL home expenses. This could include mortgage payments, property taxes, natural gas, electric, telephone, Internet, water/sewer, parking (if you have to pay for parking), landscaping/lawn care, homeowner association fees, as well as any and all repairs to the home.

Do you have a business location outside the home? In other words, do you run your business from a commercial building? This could be anything from a retail space in a shopping mall, to a rented office, to a storage unit. If so, answer the questions above, but for your commercial location.

Did you use any of your personal assets for the business? One example of this is a computer purchased for your personal use at home, but you now use it for the business. Another example would be a personally purchased pressure washer, lawn mower, or other tools that you now use for the business. If so, write down when you purchased them, the cost, and their approximate value the day you started using them for the business.

Do you sometimes go to Office Max or Staples to get something for your business, and pay for it with your personal funds? Record these purchases, and keep track of the receipts.

Do you use a vehicle for your business? This could be your own vehicle, or a vehicle used only for the business. If so, you need to track mileage. You basically have two options:

Keep a notebook in the vehicle, and write down your mileage and the purpose for each trip

Use a mileage tracking app like MileIQ to automatically track your mileage. I strongly recommend using a mileage tracking app to make this simple.

Do you use your personal money to:

Take clients out to lunch?

Pay for a company holiday party or barbecue?Keep the receipts – these expenses may be deductible.

Do you pay self-employed health insurance? You may be able to deduct 70% of your health insurance premiums.

Do you use your personal cell phone for business (this includes calls, texts, and/or Internet use)? If so, keep a copy of your phone records and highlight the business related calls/texts.

Do you purchase fuel for your equipment? This includes lawn mowers and other landscaping equipment, pressure washers, carpet extraction equipment and related items? If so, keeping your receipts might allow you to take a credit on the tax paid on fuel. (Note: as of 2017, the credit is over 18 cents/gallon.)

Did you buy any equipment? For many small businesses, this can be a large expense. A new landscaper might need a truck (or two), a trailer (or two), a lawn mower (or several), trimmers, edgers, etc. This is a big one, and is related to the home/business office questions. Be sure to document every piece of equipment you purchased. Some can be expensed; some can be depreciated. The documentation you have may help significantly lower your tax liability.

These are only a few deductions that overlooked by new business owners. If you have not started, I strongly suggest sitting down and writing down your answers to these questions, then give me a call. Let us help you get your tax bill as low as possible.

Are you scraping the bottom of the barrel of your itemized deductions? The IRS allows you to deduct a mixture of expenses that don’t fit neatly into any other basket. They’re called, appropriately enough, “miscellaneous expenses.” But you can’t just lump these expenses together and write off the full amount on your return.

After you add up all your miscellaneous expenses, you can deduct only the excess above 2 percent of your adjusted gross income (AGI) for the year.

For instance, let’s say your annual AGI is $100,000 and you incur $1,900 of miscellaneous expenses during the year. In this case, your deduction is zero because you don’t clear the tax law threshold. On the other hand, if you have $2,500 in miscellaneous expenses, you’re entitled to deduct $500.

Which expenses are deductible? The list is a long one and it’s a hodgepodge. However, miscellaneous expenses can generally be divided into two main groups: unreimbursed employee business expenses and production-of-income expenses.

Unreimbursed employee business expenses.
These are job-related expenses that you pay out of your own pocket. Some common examples are as follows:

Cellphones and home computers when required as a condition of employment.

Dues for a professional organization.

Education related to employment.

Home-office expenses (subject to business-use limits).

Licenses and regulatory fees.

Malpractice insurance premiums.

Subscriptions to professional journals and magazines.

Travel and entertainment for your business (limited to 50 percent for meals).

Union dues.

Work clothes or uniforms.

You can also deduct the cost of seeking employment – for example, printing out resumes and fees for an employment agency – whether or not you actually get a job.

Production-of-income expenses. This category covers the cost of various investment, financial, and tax services. It includes the following common examples:

Accounting fees.

Appraisal fees for charitable donations of property and casualties.

Custodial fees for IRAs.

Investment and financial planning fees.

Legal fees.

Safe deposit rentals for storing non-tax-exempt securities.

Subscriptions to financial planning magazines and journals.

Tax assistance fees.

The cost of having your tax return prepared, as well as obtaining professional advice relating to tax matters, both count as miscellaneous expenses.

It’s easy for some of these random expenses to fall through the cracks. You are advised to scour your records – and check things twice – before your return is filed. Just one or two extra items could put you over the 2 percent-of-AGI threshold or increase an existing deduction.

If you hire part-time employees to help with your busy season, the same rules and record keeping requirements apply as when you hire full-time employees:

Eligibility to Work in the United StatesYou must verify that each new employee is legally eligible to work in the United States. Have the employees you hire fill out Form I-9, Employment Eligibility Verification (PDF).

Employee’s Social Security Number (SSN)You are required to get each employee’s name and Social Security Number (SSN) and to enter them on Form W-2. (This requirement also applies to resident and nonresident alien employees.) You should also verify the Social Security Number. You can do this by registering with the Social Security Administration, or if you are an HRA client, we can provide this service for you.

Employee’s WithholdingTo know how much income tax to withhold from employees’ wages, you should have a Form W-4, Employee’s Withholding Allowance Certificate, on file for each employee. Ask all new employees to give you a signed Form W-4 when they start work. Provide a copy of the completed W-4 to HRA or your payroll provider.

Provide a W-2At the end of the year, you are required to provide your part-time employees with a W-2.

Maintain RecordsThe IRS states you should keep all records related to employment taxes for a minimum of four years. However, HRA recommends you keep all records for six years (this is also the time you should keep records for potential tax audit purposes).

Also, keep in mind that hiring part-time or seasonal employees is a great way to find potential candidates to grow your company’s full-time staff.

(Note: Fees charged by Hampton Roads Accounting are about HALF the national average!)

Taxpayers looking to hire a professional to complete their tax return can expect to pay an average of $273 for an itemized Form 1040 with Schedule A and a state tax return, according to the National Society of Accountants (NSA). This is a 4.6 percent increase over the average fee last year, which was $261. It is an 11 percent increase from two years ago – the last time the survey was conducted.

The average cost to prepare a Form 1040 and state return without itemized deductions is $159, also a 4.6 percent increase over the average fee last year, which was $152. It is an 11.2 percent increase from two years ago.

“When you consider the time it takes to complete tax returns, this is a very strong value,” says NSA Executive Vice President John Ams. “The tax code continues to become more complex each year, including some new Affordable Care Act reporting requirements. Professional tax preparers may also be able to find tax deductions and credits that may taxpayers might not notice.”

The survey also reported the average fees for preparing additional Internal Revenue Service (IRS) tax forms, including:

Hampton Roads Accounting always recommends using a tax return professional when filing your income tax return. Aside from the convenience to you, a tax professional is trained to help you legally pay as little tax as possible.

If you choose to prepare your own taxes, the information in this article will help you avoid penalties when filing your tax return.

The Internal Revenue Code imposes many different kinds of penalties, ranging from civil fines to imprisonment for criminal tax evasion.

If you do not file your return and pay your tax by the due date, you may have to pay a penalty. You may also have to pay a penalty if you substantially understate your tax, understate a reportable transaction, file an erroneous claim for refund or credit, or file a frivolous tax submission. If you provide fraudulent information on your return, you may have to pay a civil fraud penalty.

Penalties are generally payable upon notice and demand. Penalties are generally assessed, collected and paid in the same manner as taxes. The IRS notice you receive will contain the name of the penalty, the applicable code section, and how the penalty was computed (or information on how to obtain the computation if not included).

Estimated Tax-Related Penalties

Employees have taxes withheld from their paychecks by their employer. When you have income that is not subject to withholding you may have to make estimated tax payments during the year.

This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. You also may have to pay estimated tax if the amount being withheld from your salary, pension, or other income is not enough to pay your tax liability.

Estimated tax payments are used to pay income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. If you do not pay enough through withholding or estimated tax payments, you may have to pay a penalty. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.

Penalties for filing or paying taxes late

The most common penalties are for filing late or paying taxes late.

Filing late: If you do not file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. The penalty is usually 5 percent for each month or part of a month that a return is late, but not more than 25 percent. The penalty is based on the tax not paid by the due date (without regard to extensions).
If you file your return more than 60 days after the due date, the minimum penalty is $100 or, if less, 100 percent of the tax on your return.

Paying tax late: You will have to pay a failure-to-pay penalty of ½ of 1 percent (0.5 percent) of your unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. This penalty does not apply during the automatic six-month extension of time to file period if you paid at least 90 percent of your actual tax liability on or before the original due date of your return and pay the balance when you file the return.

The failure-to-pay penalty rate increases to a full 1 percent per month for any tax that remains unpaid the day after a demand for immediate payment is issued, or 10 days after notice of intent to levy certain assets is issued.

For taxpayers who filed on time, the failure-to-pay penalty rate is reduced to ¼ of 1 percent (0.25 percent) per month during any month in which the taxpayer has a valid installment agreement in force.

Combined penalties: For any month both the penalty for filing late and the penalty for paying late apply, the penalty for filing late is reduced by the penalty for paying late for that month, unless the minimum penalty for filing late is charged.

Accuracy Related Penalties

The two most common accuracy related penalties are the “substantial understatement” penalty and the “negligence or disregard of the rules or regulations” penalty. These penalties are calculated as a flat 20 percent of the net understatement of tax.

Penalty for Substantial Understatement

You understate your tax if the tax shown on your return is less than the correct tax. The understatement is substantial if it is more than the larger of 10 percent of the correct tax or $5,000 for individuals. For corporations, the understatement is considered substantial if the tax shown on your return exceeds the lesser of 10 percent (or if greater, $10,000) or $10,000,000.

You may avoid the substantial understatement penalty if you have substantial authority for your tax treatment of the item or through adequate disclosure. To avoid the substantial understatement penalty by adequate disclosure, you must properly disclose the position on the tax return and there must at least be a reasonable basis for the position.

To properly disclose the position, complete and attach IRS Form 8275 to your tax return and disclose all relevant facts. A reasonable basis is a relatively high standard of tax reporting, that is, significantly higher than not frivolous or not patently improper. The position must be more than just merely arguable or merely a colorable claim. The position must be reasonably based on authority supporting the position.

Penalty for negligence and disregard of the rules and regulations

“Negligence” includes (but is not limited to) any failure to:

make a reasonable attempt to comply with the internal revenue laws

exercise ordinary and reasonable care in preparation of a tax return or

keep adequate books and records or to substantiate items properly

This penalty may be asserted if you carelessly, recklessly or intentionally disregard IRS rules and regulations – by taking a position on your return with little or no effort to determine whether the position is correct or knowingly taking a position that is incorrect. You will not have to pay a negligence penalty if there was a reasonable cause for a position you took and you acted in good faith.

Civil Fraud Penalty

If there is any underpayment of tax on your return due to fraud, a penalty of 75 percent of the underpayment due to fraud will be added to your tax. The fraud penalty on a joint return does not apply to a spouse unless some part of the underpayment is due to the fraud of that spouse.

Negligence or ignorance of the law does not constitute fraud.

Typically, IRS examiners who find strong evidence of fraud will refer the case to the Internal Revenue Service Criminal Investigation Division for possible criminal prosecution. Keep in mind that both civil sanctions and criminal prosecution may be imposed.

Frivolous Tax Return Penalty

You may have to pay a penalty of $5,000 if you file a frivolous tax return or other frivolous submissions. If you jointly file a frivolous tax return with your spouse, both you and your spouse each may have to pay a penalty of $5,000. A frivolous tax return is one that does not include enough information to figure the correct tax or that contains information clearly showing that the tax you reported is substantially incorrect.
You will have to pay the penalty if you filed this kind of return or submission based on a frivolous position or a desire to delay or interfere with the administration of federal tax laws. This includes altering or striking out the preprinted language above the space provided for your signature.

This penalty is added to any other penalty provided by law.

Penalty for Bounced Checks

If you write a check to pay your taxes and the check bounces, the IRS may impose a penalty. The penalty is either 2 percent of the amount of the check – unless the check is under $1,250, in which case the penalty is the amount of the check or $25, whichever is less.

The Bottom Line

The bottom line is that you must report all your income, file your return and pay your tax by the due date to avoid interest and penalty charges.

Cleaning homes, apartments, offices and other buildings can indeed be a chore, but one that can be incredibly rewarding, especially when you are paid well to do it.

The tips in this article apply to all cleaning companies and professionals, whether you provide janitorial services, commercial or residential cleaning, window cleaners, pressure/power washers, auto detailing, or any related business. These tips are just as important (if not more so) to a one or two-person operation as they are to a company with dozens of employees.

Self-Employment Tax

If you ever worked for someone else and received a W-2, you and your employer each shared a responsibility for your taxes. The employer withheld a portion from your paycheck, added an employer portion, and submitted them quarterly.

Most cleaning professionals are self-employed. That means you are responsible to report and pay both the employee and employer portions of your taxes on a regular basis. However, since you are in business, you can deduct the employer portion as a business expense.

Vehicle Expenses

Whether you use your personal vehicle for business use or have a separate vehicle just for business, you can deduct expenses related to your vehicle. If you use your own vehicle for both personal use and for business use, you will need to track the business expenses separately.

Parking and Tolls

You can deduct fees and tolls related to your cleaning business. If you have to pay for parking to clean an office or a home, it is a deductible expense.

Bus / Train / Other Public Transportation

If you have to travel by bus, train, taxi, or Uber/Lyft to go from job site to job site, you can deduct the cost of this transportation. Keep all receipts.

While vehicle and transportation expenses will be a significant portion of your expenses, they aren’t the only ones you can deduct:

Advertising

Newspaper ads, flyers, Facebook ads, postcards, imprinted pens, direct mail letters, and other related ways to market your business. Even the costs of setting up a tent/booth at a local home show are deductible if you are advertising your business. The cost of having a logo designed for your company – that’s deductible also.

Insurance

Most cleaners need to have general liability insurance, which is a valid business expense. Don’t claim vehicle insurance – that was already covered by the vehicle expenses.

Phone Service

If you have a separate phone line installed for your business, it is a valid expense. Most people today use their cell phones for business. If it is your personal phone, you will have to separate out the business use from personal use.

I have one client who uses her cell phone for business, and her customers communicate with her by text message. Each month, she prints out her cell phone record and highlights the texts from her customers. This is a great way to document actual business usage of her phone, and good records are needed to substantiate any type of deduction claimed on your tax returns.

Health Insurance

You are in business, and you need health insurance. Your premiums may be deductible if your business makes a profit and you can’t enroll in an employer’s health plan (if you can be claimed on your spouse’s health plan, you can’t claim the deduction.)Employer Portion of Social Security and Medicare

As noted earlier, you are responsible for both the employer and employee portions of employment taxes. The good news is you can deduct the employer portion as a business expense.

Ordinary and Necessary Expenses

Any cleaning company has a lot of ordinary and necessary expenses to keep the operation going. You can claim expenses for:

Wages you pay to employees or helpers

Tools

Machinery

Solvents, rags, gloves, and other supplies

Training and certifications you acquired

Keeping clear records is critical because it’s easy to forget small deductions over time, such as the fuel used to power your pressure washer. Keep receipts for all business-related costs to show the IRS in case you are audited.
You can deduct larger items, like a floor buffer or pressure washer, over time because it is considered a “capital purchase”. You can spread the deduction of a “capital purchase” over the number of years you expect the item to last. For example, if a floor buffer costing $1300 is expected to last five years:

$1300 x 20% = $260. $260 is the deduction you can claim each year for five years.

These are just a few of the many business items a new cleaning business must keep in mind. If you need help in setting up your new business or want to discuss how you can improve your operations, please contact our office.

In a previous post, I talked about how some Virginia tax refunds are being delayed because of extra precautions being taken due to identity theft. These same criminals have targeted individuals for both federal and state returns.

Both the IRS and state tax departments are taking extra steps to verify information on tax returns to protect your identity and your refund. Many people have heard about this through the news, but are not sure exactly what that means for them.

Criminals are taking advantage of this confusion by calling individuals, pretending to be IRS agents, and asking to verify information on their return so the return can be processed.

This January, the Treasury Inspector General for Tax Administration (TIGTA) announced they have received reports of roughly 896,000 phone scam contacts since October 2013 and have become aware of over 5,000 victims who have collectively paid over $26.5 million as a result of the scam. Just this year, the IRS has seen a 400 percent increase in phishing schemes.

The IRS will never:

Call to demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you several bills.

Call or email you to verify your identity by asking for personal and financial information.

Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.

Require you to use a specific payment method for your taxes, such as a prepaid debit card.

Ask for credit or debit card numbers over the phone or email.

Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money or to verify your identity, here’s what you should do:

Have you received a “Review of Tax Return” letter from the Virginia Department of Taxation?

The Virginia Department of Taxation is sending “Review of Tax Return” letters (AUIN073A RAP Additional Review) to some taxpayers to verify withholding information. Because of the increase in identity theft and refund fraud, Virginia is taking extra precautions this year to validate the refund returns it processes.

Processing of tax returns could take longer as Virginia works to protect taxpayer information and ensure that taxpayers receive the state income tax refunds to which they are entitled.

You might be concerned if you receive a Review of Tax Return letter. Receiving the letter does not mean you are a victim of identity theft or that your return contain errors or missing data. It just means that your return was stopped for review.

If you receive this letter, you should read it carefully to determine what action you might need to take.

Please note the following:

• If you DID NOT submit an individual income tax return, you should check where indicated in the first paragraph of the letter and return it using the fax number or address provided.

• If you DID file a return, you should follow the instructions in the letter and submit all requested documents as soon as possible by fax or mail. Virginia will continue processing returns once it receives all requested documents and confirms that the returns are correct. Once you send in the requested documents, please allow 7 business days for Virginia to receive them.

• If you filed a return and already received your refund, or receive one before sending Virginia the requested information, Virginia was able to verify your returns through other means. They no longer need documentation from you, and you may disregard the letter.

Getting a letter from the state about your tax return can be stressful, but we are here to help. If you received a Review of Tax Return Letter, please contact Hampton Roads Accounting today for assistance or to answer any questions you may have.

Money you paid for higher education in 2015 can mean tax savings in 2016. If you, your spouse or your dependent took post-high school coursework last year, there may be a tax credit or deduction for you. Here are some facts from the IRS about key tax breaks for higher education.

The American Opportunity Credit (AOTC) is:

Worth up to $2,500 per eligible student.

Used only for the first four years at an eligible college or vocational school.

For students earning a degree or other recognized credential.

For students going to school at least half-time for at least one academic period that started during or shortly after the tax year. Claimed on your tax return using Form 8863, Education Credits.

The Lifetime Learning Credit (LLC) is:

Worth up to $2,000 per tax return, per year, no matter how many students qualify.

For all years of higher education, including classes for learning or improving job skills.

Claimed on your tax return using Form 8863, Education Credits.

The Tuition and Fees Deduction is:

Claimed as an adjustment to income.

Claimed whether or not you itemize.

Limited to tuition and certain related expenses required for enrollment or attendance at eligible schools.

Worth up to $4,000.

Additionally:

You should receive Form 1098-T, Tuition Statement, from your school by Feb. 1, 2016. Your school also sends a copy to the IRS.

You may only claim qualifying expenses paid in 2015.

You can’t claim either credit if someone else claims you as a dependent.

You can’t claim either AOTC or LLC and the Tuition and Fees Deduction for the same student or for the same expense, in the same year.

Income limits could reduce the amount of credits or deductions you can claim.

Contact Hampton Roads Accounting today for help and to check your eligibility.

You have a passion for home repairs, and you produce professional products that you are proud of. Friends and neighbors ask for your help, and refer you to their friends. Before you know it, your spare time is filled doing a variety of repair projects for others (and getting paid for it, too!) You are sure you can run a successful home repair business in your town.

After a little thought, it isn’t long before you start posting ads on Craigslist, sharing on Facebook, or passing flyers around. Word of mouth about your service spreads, and you have customers all across town. Congratulations, you started a small business!

But hold on a moment – are you really in business, or are you just making money off your hobby?

The Internal Revenue Service takes a serious look at a hobby listed as a business, and there are rules to determine if your activity qualifies as a business. Here are some factors for you to consider:

Your time spent

Are you spending a few hours per week on your business, or several hours per day? You must be able to show that you are putting in the time needed for your business to make a profit. Otherwise, you are just spending free time on your hobby.

Do you depend on the income?

What would happen if you lost the income from your business? If the income your business generates suddenly stops, could you still pay your bills?

Your business knowledge

Do you have the knowledge to start and operate a successful business? If not, do you trust someone who can be an advisor? Have you successfully operated similar activities in the past?

Profit

Profit is the goal of most small businesses. Do you reasonably expect to make a profit from your activity? The IRS considers you ‘for profit’ if you make a profit for at least three of the last five tax years, including this year. If you are not making a profit, are you making changes in your operation to turn this around?

Business Deductions vs. Hobby Deductions

If you are operating a hobby (and earning money from it), you are able to deduct expenses up to the amount you earned from your hobby. You have to report your income from your hobby, but you can also report your expenses.

If you are in business, however, you can deduct the expenses of starting and operating your business, even if you have a loss. How much can you deduct? It depends on your specific situation, but is generally much more than deductions allowed from a hobby.

Here’s an example:

You operate a home repair service (carpentry, painting, plumbing, general home repairs) from your garage and have numerous customers in your area. You have a considerable investment in a truck, tools, and supplies. Customers are happy with your services, and word of mouth drives more customers to you.

As a hobby, you are able to deduct expenses (materials, tools, equipment, etc.) up to the amount you earn from the sales.

As a business, however, you can deduct those expenses, plus:

The cost of going into business (business license, permits)

Accountant and legal fees

Insurance

A vehicle (or vehicles)

A deduction for the business use of your home

The cost of going to industry events, including travel, hotels, meals, and associated fees

Training, classes, and certifications you might need to remain current

Membership in the local Chamber of Commerce, Better Business Bureau, and other organizations related to your business

And so much more

So, how do you show you are a business, an not a hobby?

There is only one way to prove that you are a business and not a hobby – RECORDKEEPING.

Do you have?

A business plan – The old saying goes “If you fail to plan, you plan to fail.” Businesses that have a business plan (and follow it) are several times more likely to succeed than those who do not have a plan.

Business Entity Formation – Set up your business as a sole proprietor, partnership, limited liability company, or corporation. Each business form has its advantages and disadvantages, so take some time to choose a form that’s beneficial for you now and in the future.

Copies of licenses and permits – documents that show you are legally able to sell your product or service.

Accounting records that show all of your transactions (purchases, sales, expenses) – this includes financial records of prior performance and projections for future operations.

Resources

Here are three resources you can turn to for more information:

Hampton Roads Accounting. We specialize in small businesses, providing a range of services including accounting, bookkeeping, payroll, business planning, and tax services.

IRS Publication 535, Business Expenses. You can find a copy of this publication in our Resources Section.

Small Business Administration – In our Resources Section, under ‘Starting a Business’, you will find several courses from the Small Business Administration, including one on creating a business plan.

What are you looking for in an accounting firm? Every business owner is different, and has different needs. YOUR needs are different than every other business owner, so take the time to choose an accounting firm that you feel comfortable with, and can provide you the services you need.

Here are 10 questions to ask a prospective accounting firm:

What type of firm are you?

Accounting firms generally fall into one of four categories: Public accounting firms, tax specialists, forensic accountants, and bookkeepers. Public accounting firms normally hire Certified Public Accountants (CPAs) that specialize in tax, auditing, and management consulting. Tax specialists focus on tax preparation and tax planning for companies and individuals. Forensic accountants investigate financial records to uncover fraudulent and illegal activities, and often work with federal and local law enforcement. Bookkeeping firms provide fundamental accounting that most people know – accounts receivable, payroll, financial statements, bank reconciliation, tax preparation, loan document preparation and related services.

Level of Service

Exactly what services are you interested in? Full service outsourced bookkeeping, or someone to check your records as you enter your information? If you need complete bookkeeping services, look for a full-service accounting firm that employs bookkeepers who handle day-to-day client transactions. An accounting firm that does not employ bookkeepers will charge more if a CPA handles routine bookkeeping tasks.

Availability

How often do you want to meet with your accountant? Once a year, once a quarter, once a month, or on call for every question you may have? Some clients are content to meet with their accounting firm once a year for tax-filing purposes. Others clients have frequent business questions that require timely answers. Find out if your accountant is a phone call away or if you’ll have to schedule a time to come into the office and talk in person.

Fees

Some firms charge a set rate for each task they perform, such as filing a 1040 individual income tax form, balancing a monthly bank statement, or compiling a statement of net worth. Other firms charge by the hour or the minute, meaning each phone call, meeting, or activity will cost you money.

Certifications/Education

There are over 40 different certifications for accountants, depending on the specialty. The most widely known is the Certified Public Accountant (CPA), the Enrolled Agent (EA), and the Personal Financial Specialist (PFS). Education for accounting professionals is normally a Bachelors or Masters degree in Accounting or Business Administration.

Advice

Some accounting firms are quick to offer advice on when to purchase equipment and how to keep financial records, while other accounting firms compile the necessary financial reports but offer little feedback. The amount of advice you need or want depends upon your financial knowledge and experience. If you need a lot of help, select a firm that offers in-depth financial counseling.

Personal Connection

In my opinion, this is the most important decision you must make when choosing an accounting firm. You can hire the highest-priced accounting firm in town, but if you don’t feel comfortable discussing your finances, you aren’t getting the service you need. If the accountant talks in terms you don’t understand or if you feel intimidated, look for a different firm.

Goal Setting

Some accountants offer to help clients set goals and monitor financial progress, which can be very helpful if you’re just starting out in business. Find out the firm’s policy on goal setting and if you’ll be charged an additional fee for the service.

Audit Support

When the Internal Revenue Service comes knocking, it’s reassuring to know that your accountant will be right by your side. IRS audits are a way of life for some small-business owners and individual taxpayers, but facing an audit is a stressful situation. Some accounting firms offer their own offices for audit purposes and provide an accountant to represent your interests.

References

Old-fashioned word-of-mouth is as valuable a reference today as it ever was. Talk to friends or business associates to find out what accounting firm they use and if they would recommend it to others. One note on references – a new accounting firm may not have references (just like you didn’t have references when you started YOUR business). While references are important, don’t make your decision solely on them. In the end, you must be comfortable working with your accounting firm.

You cannot deduct the cost of a home security system as a cheap nfl jerseys miscellaneous deduction. However, you may be able to claim a deduction for a home security system as a business expense if you have a home office.

What qualifies as a Home Office?

If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of of your home.

You can claim this deduction for the business use of a part of your home H?rger?te only if you use that part of your home regularly and exclusively:

As your principal place of business for any trade or business,

As a Gambling place to meet or deal with your patients, clients, or customers in the normal course of your trade or business, or

In the case of a separate Die structure not attached to your home, in connection with your trade or business.

The regular and exclusive business use must be for the convenience of your employer cheap mlb jerseys and not just appropriate and helpful in your job.

So, if you have a home office …

If you install a security system that protects all the doors and windows in your home, you can deduct the business part of the expenses you incur to maintain and monitor the system. In addition, you can take a depreciation deduction for the part of the cost of the security system relating to the wholesale mlb jerseys business use of your home.

One of our services is tax planning. Normally held between October and January, Hampton Roads Accounting recommends scheduling an appointment with one of our accountants to discuss your plans for the following year. Going on a vacation? wholesale nba jerseys Buying Steps a home? Are you or your child getting ready for college? Let us help you take full advantage of your tax situation. Small things can add up to big savings for you, and we are here to help.

If you like to gamble, this easily overlooked deduction could save you money each year.

Gambling winnings are taxable income, and you are required to report them on your – tax return. Winnings can come from lottery tickets, casinos, racetracks, and other Steps sources. These winnings include cash and the value of any prizes you win, like trips, cars, or raffle prizes.

The good news is you can deduct the amount of your gambling losses, look limited to the amount of your gambling winnings. To ?? claim your gambling losses, you must be able to show proof of what you spent. This could include scratch-off tickets, racetrack tickets, cash advance receipts from a casino, or similar records.

The recordkeeping requirement is similar to records needed for ??i vehicle expenses. Essentially, you need Things to keep a diary of transactions, Soccer and have records that support your diary entries.

You will need a diary of winnings and losses, which includes:
• The date and type of your specific wager or wagering (2146) activity
• The name and address or location of the gambling establishment
• The names of other cheap nfl jerseys persons present with you at the gambling establishment
• The amount(s) you won or lost
You will also need supporting documents. Here are some examples:
Lotteries (includes scratch-offs):
• Non-winning tickets
• Payment slips
• Winnings statements

Depending on the amount you win, the payer may issue you an IRS Form W-2G, Certain Gambling Winnings. Keep this form and bring it in when we prepare your taxes.

One of our services is tax planning. Normally held between October and January, Hampton Roads Accounting recommends scheduling an appointment with one of our accountants to discuss your plans for the following Beach year. Going on cheap nba jerseys a vacation? Buying a home? Are you or your child getting ready for college? Let us help you take full advantage of your tax situation. Small things can add up to big savings for you, and we are here to help.